372. Instructions regarding extent of expenditure incurred on food or beverages provided to employees by employers to be treated as entertainment expenditure under section 37(2)
Circular No. 708 was issued by the Central Board of Direct Taxes on 18 July 1995. Its subject is 372. Instructions regarding extent of expenditure incurred on food or beverages provided to employees by employers to be treated as entertainment expenditure under section 37(2).
This fixes the monetary limits below which the department will not appeal. It binds the department only: it is not a rule about the merits, and an assessee cannot draw an inference from a withdrawn appeal.
Replaces the salary test in Circular No. 644 dated 15 March 1993 with a money ceiling for food and beverages provided by an employer. Under the earlier circular such expenditure escaped the Explanation to section 37(2) only for low-paid employees. Now expenditure up to Rs. 35 per day per employee on food or beverages, incurred during working hours even away from the place of work, is not entertainment in nature, subject to proof of genuineness; where the spend exceeds that figure only the excess over Rs. 35 per day per employee is treated as entertainment. In the employee's hands the amount up to Rs. 35 per day is not treated as income if the employer pays the caterer, restaurant, eating place or canteen directly. The concession applies to expenditure of the financial year 1995-96, relevant to assessment year 1996-97, and later years.
Representations were received to extend the benefit of the earlier circular to all employees irrespective of salary limits, with a ceiling placed on the amount instead.
| Under the 1961 Act | Now |
|---|---|
| s.37 | s.34 |
372. Instructions regarding extent of expenditure incurred on food or beverages provided to employees by employers to be treated as entertainment expenditure under section 37(2)
1. Reference is invited to the Board’s Circular No. 644, dated 15-3-1993 (see Sl. No. 371) wherein it was clarified that the expenditure on provision of food or beverages by an employer to the low-paid employees will not be treated as entertainment expenditure within the meaning of the Explanation under section 37(2) of the Income-tax Act, 1961 even if the facility is provided in places other than the place of work provided the same is provided during the working hours and the expenditure is genuine and reasonable. Representations have since been received for extending the benefit of the circular to all the employees irrespective of salary limits, subject to monetary limits on the expenditure.
2. The Board has since considered the matter and has decided that expenditure up to Rs. 35 per day per employee shall not be treated as in the nature of entertainment if the same is incurred on food or beverages even outside the place of work, but during working hours subject to proof of genuineness of the expenditure. In case the expenditure exceeds the above limit, only the excess over Rs. 35 per day per employee shall be treated as entertainment in nature within the meaning of Explanation under section 37(2) of the Act. In the hands of the employee, the amount up to Rs. 35 per day will not be treated as income, provided the amount is paid by the employer directly to the caterer, restaurant, eating place, canteen, etc.
3. This circular shall apply with reference to the expenditure incurred during the financial year 1995-96 relevant to the assessment year 1996-97 and subsequent years.
Circular : No 708, dated 18-7-1995 as amended by Circular No. 727, dated 27-10-1995.
In an assessment where meal or canteen expenditure is proposed to be treated as entertainment expenditure, or in a query on the perquisite value of meals in an employee's salary computation.
Source: the Income Tax Department’s own published text — its page for this instrument.